KONA KAI RESORT BOUGHT FOR $12.5M

Company plans to spend $22 million to add rooms and revamp Shelter Island hotel

The 129-room Kona Kai Resort on Shelter Island has been sold to a Seattle-area hotel firm that plans to invest $22 million in reviving the aging waterfront property.

Noble House Hotels, which also manages the Mission Bay Hilton, wants to renovate the 129 guest rooms; redo the restaurant; redesign the meeting space, front entrance and lobby; and add a spa. It purchased the leasehold, which sits on San Diego Unified Port District tidelands, from Atlas Hotels for $12.5 million.

“It’s an incredible asset that is rich in history,” said Sean Mullen, chief sales and marketing officer for Kirkland, Wash.-based Noble House, which already owns the adjacent marina. “What we want to do is turn it around and revive that history.

“We’re a company in expansion mode for the last three or four years, and we look for assets that have unique locations, and being at the end of the island, it has incredible views, the benefit of the marina and it’s near the airport.”

Late last year, San Diego port commissioners approved the impending sale, which closed in late December and granted an option agreement for a new 35-year lease.

Port staff noted in a report that Noble House plans to redevelop the property and reposition the resort as a high-end boutique hotel property. The company also plans to add 45 rooms, the report noted.

Mullen acknowledged that the Kona Kai is a tired property in need of a major overhaul. His hope is that the resort, once renovated, will receive the kind of accolades garnered by Noble House’s upper-end Florida properties.

“It’s fallen out of top of mind right now,” he said. “When people think of San Diego, they don’t think of the Kona Kai right away. We hope to reposition this asset so it will be recognized nationally as the place to go in San Diego.”

Orange County hotel broker Alan Reay said he believes the $12.5 million paid by Noble House is reasonable given the hotel’s premium views.

“At $12.5 million, it is less than $100,000 per room,” said Reay, president of Atlas Hospitality Group. “As a comparison, the Viceroy in Santa Monica, with 169 rooms on a ground lease and no way near the views that the Kona Kai has, sold for just under $500,000 per room, so this is a great purchase price for the buyer.

“Even with the buyer’s planned $22 million in renovations, they will have a class “A” hotel at a total investment substantially below recent sales comps and an irreplaceable location.”